Doing business in China — lessons from Hollywood

Now that the Canada-China Foreign Investment Protection Agreement (FIPA) has been implemented, Canadian investment in China is likely to increase. Where that investment involves proprietary technology and methods — trade secrets, patents, trademarked brand names and copyrighted content — investing companies will face challenges.

In China, for cultural and historical reasons (and to take shortcuts to achieve business goals), respect for and enforcement of intellectual property rights (IPR) is considerably less rigorous than it is here at home.

I spent almost ten years based in Hong Kong as head of the Office of Public Policy for the U.S. media giant Time Warner. One of our major challenges in China — a market as important to Hollywood as it is to Canadian investors and exporters — was rampant intellectual property infringement. Whenever we seemed to be making progress, new forms of IP theft would appear as business methods and technology changed.

China has come a long way in developing a legal framework to protect IPR, but there are still major gaps given the disparate nature of the Chinese economy — where instructions from Beijing are often ignored by local officials unless and until a major national campaign is mounted. Such campaigns usually get a lot of publicity — but once the photo ops are over, it’s back to business as usual.

In such an environment, companies often seek the support of their home government to pressure local authorities — with limited effect. But the most effective means of change occurs when stakeholders act in their own self-interest. China’s treatment of IPR is changing as it moves up the intellectual property value chain — just as Japan and Korea did when their economies shifted from being takers to makers of intellectual property. So it’s important to find allies within the Chinese system.

During my days in China, I was actively involved some 200 international companies with investments in China that had formed an association called the Quality Brands Protection Committee (QBPC). The QBPC held annual “best cases” awards to thank Chinese agencies and personnel who had made significant contributions to IP protection. The awards became a high-powered event, attended by senior government officials and conferring recognition on local officials trying to do their job in difficult circumstances. Training, seminars, workshops and incentive programs like the “best cases” awards offered by the QBPC were key elements in developing effective strategies to improve respect for IPR in China.

The bottom line is that any business thinking about doing business in China should be taking inventory of its intellectual property — and developing a strategy to protect it.

Systemic changes are coming in China. We’re seeing better-trained enforcement agencies and judges, and greater coordination among enforcement agencies. The public is more aware of the health and safety risks of counterfeiting, due in part to events like the 2008 powdered milk scandal. China is encouraging more domestic innovation, which can’t help but reduce the demand for intellectual property infringement. But because of China’s vast size, its stage of economic development and its different cultural values, IPR challenges will remain for some time to come.

The study outlines measures companies can take to protect their intellectual property in China. Companies can take full advantage of existing Chinese law to ensure that their IP is registered in China. They can employ legal measures to go after offenders. They can also make use of non-legal measures — such as cultivating good relations with local officials, withholding key IP elements from joint ventures and carefully vetting and training employees.

The bottom line is that any business thinking about doing business in China should be taking inventory of its intellectual property — and developing a strategy to protect it.

The Canadian government, meanwhile, could take concrete steps to address the problem by assigning an IP attaché to the embassy in Beijing. Both the U.S. and EU have such an office, staffed by knowledgeable professionals usually on secondment from specialized agencies dealing with IPR.

These officers can not only give Canadian companies practical, on-the-ground advice, they can also work with agencies and personnel within the Chinese establishment that are genuinely trying to strengthen respect for and protection of IPR in China. They can share best practices and work with these partners to help China meet international standards. Canada should be part of the effort to move China up the scale when it comes to protection of intellectual property.

The Chinese market is going to be important for Canadian business for generations. One day, China probably will be more like Japan — a country where there is almost universal respect for intellectual property. In the meantime, Canadians wishing to do business in and with China should study the APF Canada report, and invest in developing an IPR-protection strategy. And Ottawa could, and should, contribute to the ongoing evolution of IPR awareness, respect and protection in China by stationing an IPR specialist at the embassy in Beijing.

Hugh Stephens is Principal of Trans-Pacific Connections and Senior Fellow at the Asia Pacific Foundation of Canada. He was formerly SVP Public Policy (Asia Pacific) for Time Warner.

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